Besides, the pre-Budget document also suggested that the other short term measures, which can be used by the government to enhance business environment include review of the existing regulatory landscape for outdated regulations, strengthen grievance redressal against inspections among others.
"The government could institute a 'use it or lose it' policy to free up locked land, which can be used for industrial estates, common facilities, incubators, etc," said the Economic Survey, for 2013-14 tabled by Finance Minister Arun Jaitley in Parliament today.
The document added that a lot of land is held by developmental authorities, Public Sector Undertakings (PSUs) and large firms. These land banks stay unutilised.
"The existing separation of land into commercial and residential plots is detrimental to setting up micro, small and medium enterprises (MSMEs). One solution would be to designate land for mixed use and make it available to micro enterprises when they start out.
"Another would be to create pre-approved blocks in new industrial zones, where permission for a wide variety of activities has been obtained," it said.
It added that over the next few years the government, both at the Centre and in states, has to consider ways to improving the business environment for small businesses.
Giving example, the Survey said Ebiz portal set up by the Department of Industrial Policy and Promotion (DIPP) has already done some work which can be built on. Over time, the website can also carry best practices from across states.
"While, the long term solution is a wholesale revamping of the laws and regulations governing business, a number of steps can be taken in the short term, and a number of policy experiments could be initiated for the long term," it said.
On the long term steps, the document said that Indian legislation governing business needs to be "thoroughly revamped".
"A committee could be constituted with the mandate to propose a more streamlined and modern set of laws, especially in the areas of taxation, labour, environment and safety," the Survey said.
Preliminary work can be started, but in controversial areas, the focus has to be on building consensus for the time being, it added.
The Economic Survey suggested that in the mid term the government should ask states to share best practices on business regulations and see what can form the basis for tried and tested regulatory change.
"Based on these inputs, create a state-approved model regulatory structure that is available for businesses opening up in National Investment and Manufacturing Zones (NIMZ)," it added.
On the state-approved regulatory structure, the Economic Survey said the model should include details on entry regulation, land/site allotment and development, regulations including labour, taxes and safety/environment compliance norms including self-certification.
It would also include third party certification, deemed certification and risk-based inspections and conditions for exit.
"States would of course have the freedom to depart from the model structure. Departures can be monitored to see what works," it added.
A more permanent entity (along the lines of Australian Productivity Commission) can be set up as the knowledge base of work on the business environment and the champion for change in the medium term, it suggested.
On short term measures, the Economic Survey suggested reviewing the existing regulatory landscape for outdated regulations which can safely be done away with.
A more ambitious task would be to create model regulatory structure from first principles that initially could apply just to SMEs.
Giving the example of Karnataka on grievance redressal mechanism, the Survey said firms in the state can successfully appeal and obtain redressal within 3-5 days.
"To help make the redressal process effective, ensure that copies of all documents generated in the inspection and redressal processes are provided to firms," it added.
The Survey suggested shifting the task of taking important decisions to higher officials.
"The inspector's remit should would be to observe and document violations, while significant penalties could be the remit of senior officials," it added.
Minimise human interactions and shift reporting/data submission to online-only mode wherever possible like routine registration, repeated filing and reporting of information, it recommended.
The Survey also laid emphasis on creating a system of self-certification and third party certification. Allow this to stand in for a wide variety of inspections of regulations deemed lower priority or less critical for public good, it said.
"Follow a risk management approach where high risk decisions/larger companies/companies that do not have a record of compliance are subject to frequent inspections," it added.
Allow firms a time period to remedy faults, rather than penalising them, it recommended, adding that the focus of inspections should be on helping firms comply with regulations rather than penalising defaulters.
Flexible choices should be offered to employees that reflect the evolution and wider availability of social security and health benefits from providers like New Pension Scheme and Rashtriya Swasthya Beema Yojna.
"Amend the MSME Act of 2006 to provide a mechanism for the orderly handling of financial distress by introducing a temporary stay, followed by orderly and speedy liquidation, revival or sale options, the Survey also recommended.